Suppose that Thom experiences a greater loss in utility if he loses $50 than he would gain in utility if he wins $50. This implies that Thom's
A)marginal utility diminishes as wealth rises, so he must be risk averse.
B)marginal utility diminishes as wealth rises, but we can't tell from this if he is risk averse.
C)marginal utility increases as wealth rises, so he must be risk averse.
D)marginal utility increases as wealth rises, but we can't tell from this if he is risk averse.

Question

Quizplus · Accepted Answer

Thom's greater loss in utility from losing $50 compared to the gain in utility from winning $50 indicates that he values each additional dollar less as his wealth increases, which is a characteristic of diminishing marginal utility. This behavior is consistent with risk aversion, as risk-averse individuals prefer to avoid losses more than they prefer equivalent gains.

Suppose That Thom Experiences a Greater Loss in Utility If